The Avalanche (Reverse for a Phoenix ) The 6 Building Blocks of Price Development (Ideal Scenario): Momentum: Above average pace on the reversal from highs, followed by slower than average upside as support holds. Within that congestion along support, it is preferable to see the momentum slow on the upside moves and increase on the downside. Trend Development: When a security has had three waves of buying already and then attempt to form an Avalanche, the odds are higher for success on a subsequent Avalanche. When dealing with an Avalanche that forms within a trading range then it is best if there have been at least two waves of selling already within the range. This setup is strongest when the base of the Avalanche forms with less than a 61.8% retracement of the original drop from highs. Time Development: Look at the impulse move off highs at the start of the Avalanche. Compare it to previous impulse moves that are similar. Now look at how long corrections formed before offering another impulse move. The Avalanche should take approximately the same amount of time to form its corrective phase as prior corrections. Support and Resistance: When the base of the Avalanche pattern is directly on top of or is cut in half by the moving average that it is hugging, the odds are higher for a strong momentum breakdown than if the base or consolidation is directly under the moving average. When forming along moving average support, the approach of the next fastest moving average and an impending crossover of those two is a strong pro. For instance, if the security is basing along the 20 day moving average, then the imminent crossover of the 10 and 20 day simple moving averages will increase the success of the breakdown. Check the next larger time frame for support. For instance, if an Avalanche is forming on a daily chart at the 20 day moving average, then the 20 moving average on the weekly chart is strong support. So if it is near at hand, then it can place a strong constraint on the reward potential for the setup. If the Avalanche is forming within a trading range, then it is nice to see the range pulling into a larger moving average resistance level just prior to breaking lower. The 76.4% and 78.6% Fibonacci Fan zone based upon the initial impulse move to the downside is an ideal location for an Avalanche to trigger off of.
Volume: Ideally volume will increase on the impulse move off highs and then begin to wane as the security hits support and corrects at that support level. Upside moves off the support should have diminishing volume, particularly just prior to the entry trigger. This can aid advanced traders in entering the position ahead of a breakdown. Correction Periods: Higher probability if the setup triggers coming out of a correction period on the last major highs within the congestion. Entry trigger: When the last portion of the channel breaks to the downside. Use smaller time frames to look for earlier entry clues. See examples. Two to three waves of reaction off the support within the channel is ideal. Stop: Above the highs of the channel or the last portion of the channel prior to the breakdown. Target: Initial target is typically a measured move based upon the impulse wave off highs, but the Avalanche has potential for strong continuations when it forms off larger time frame resistance. See Example #1 on next page. IMPORTANT DISCLAIMER: Trading in commodities and/or securities may not be suitable for all individuals. Consult your broker or other professional to determine your suitability. The discussions provided by Toni Hansen are for educational purposes only and should not be taken as a recommendation to buy or sell the referenced security. Past performance is not indicative of future results.
Avalanche #1 USDJPY 60 Minute Trend Reversal Daytrade setup with multi-day potential
Avalanche #2 USDJPY Continuation of the Larger Trend Avalanche within a larger trading channel breakdown (Bear Flag)
Phoenix #1 GBPCHF Potential weakening on daily, but off lows of larger intraday downtrend Supplemental 200 Tick with Fibonacci